CRM platform provider salesforce.com, Inc. (CRM - Free Report) is set to report second-quarter fiscal 2015 results on Aug 21. Last quarter, the company posted a negative earnings surprise of 170.0%. It is also worth noting that Salesforce has underperformed the Zacks Consensus Estimate in all the four preceding quarters with a negative earnings surprise average of 133.13%.
Let us see how things are shaping up for this announcement.
Factors this Past Quarter
Although Salesforce reported a loss in the last reported quarter (1Q15), its revenues increased year over year primarily due to growth across all its business segments and Salesforce ExactTarget Marketing Cloud platform. Moreover, Salesforce raised the fiscal 2015 guidance.
The rising number of deal wins at Salesforce and the rapid adoption of its cloud-based solutions remain the growth catalysts. Overall, the company’s diverse cloud offerings and strong spending on digital marketing are the positives. Moreover, the company’s strategic acquisitions and the resultant synergies are expected to remain the long-term positives.
Moreover, Salesforce had earlier outlined its plans to expand in the European counties by opening data centers in the U.K., France and Germany by 2015. The opening of these data centers will help Salesforce tap local small and medium businesses as well as government agencies.
While these investments are necessary for long-term growth, margins will remain under pressure over the next few quarters, in our view.
Although the company is growing reasonably in the cloud market, growth prospects are tempered by competition from the likes of International Business Machines (IBM - Free Report) , Oracle Corp. and SAP AG.
Our proven model does not conclusively show that Salesforce will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 1 cents. Hence, the difference is 0.00%.
Zacks Rank: Salesforce’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies, which you may consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Nimble Storage, Inc. , with an Earnings ESP of +25.00% and a Zacks Rank #3.
GameStop Corp. (GME - Free Report) , with an Earnings ESP of +10.53% and a Zacks Rank #3.